A. L. Davis

September 15, 2015

Via Electronic Mail and www.regulations.gov

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Conflict of Interest Rule, Room N-5655 

U.S. Department of Labor

200 Constitution Avenue N.W. 

Washington, D.C. 20210

Office of Exemption Determinations 

Employee Benefits Security Administration 

Attn: D11712 and D-11713

Office of Exemption Determinations 

Employee Benefits Security Administration 

Attn: D11712 and D-11713

U.S. Department of Labor

200 Constitution Avenue, N.W. 

Washington, D.C. 20210

RE: Proposed Conflict of Interest Rule and Related Proposals, RIN 1210-AB32 and

ZRIN: 1210-ZA25

Good Morning, Ladies and Gentlemen:

I appreciate the opportunity to comment on the United States Department of Labor’s 

(“Department”) Employee Benefits Security Administration's (“EBSA”) proposed regulation(s)

under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) that will

redefine the term “fiduciary” under Section 3(21) of ERISA and Section 4975(e) of the Internal 

Revenue Code of 1986, as amended, and further, will establish a best interest contract

exemption (such proposals hereinafter individually as well as collective referred to as the 

“Proposal”). I trust that my comments are helpful to the Department as it assesses the potential 

impact of the Proposal, particularly on individual retail retirement investors such as myself, and 

considers the recommended revisions as more fully set forth below.

I.

INTRODUCTION

As an initial matter, I respectfully adopt the comments offered by the Small Business 

Administration's (“SBA”) Office of Advocacy (“Advocacy”) on July 17, 2015 (Available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00403.pdf) (Last Visited on September 15, 2015), 

and wholly incorporate and integrate the same herein by reference thereto. Specifically, I share 

the concerns advanced by the SBA's Advocacy's Acting General Counsel, Ms. Claudia Rodgers, 

that the Proposal evinces a departure from the essential, threshold requirements of clearlyestablished law, namely, the Regulatory Flexibility Act, 5 U.S.C. Section 601, et seq. (“RFA”), 

because the Department's Initial Regulatory Flexibility Analysis (“IRFA”) contained in the same 

is deficient. Id. at pp. 1-5. Accordingly, I concur with Advocacy's recommendation that the 

Department republish for public comment a Supplemental IRFA before proceeding with its 

Proposal.
Furthermore, I request the Department conduct another round of live hearings on a 

Supplemental IRFA so that it may proceed on the basis of a fully-developed rulemaking record.

II.

DISCUSSION

A.

Preliminary Statement.

Even if the Department has a legal basis upon which it can lawfully proceed with its 

Proposal by certifying that the public interest will not be advanced by a Supplemental IRFA, 

nevertheless, the Proposal is flawed because: (1) the Department's proposed broad definition of 

the term “fiduciary” would certainly operate to diminish the ability of retail brokerage firms like 

Charles Schwab, Fidelity, and TD Ameritrade to provide free or low cost investment data, tools, 

research, education and support services to retail retirement investors (“IRA Investor(s)”); and 

(2) the Department's proposed limited list of permitted assets which, notably, excludes 

exchange-listed call and put options, amounts to no more than a solution searching for a 

problem, and is, thus, very harmful to IRA investors, including, by way of specific example, but 

not necessarily limited to, those retirees who rely on premiums earned from selling call options 

fully secured by stock ownership to supplement their income. I will touch on each point, in turn.

B.

The Department's broad definition of the term “fiduciary” would pose a substantial harm 

to IRA investors.

The Department’s proposed broad definition of the term“fiduciary” would operate to 

diminish the ability of retail brokerage firms to provide free or low cost investment data, tools, 

research, education and support services to IRA investors. In fact, absent a so-called “best 

interest contract,” a firm would only be able to deal with IRAs: (1) on a strictly order-taker basis; 

or (2) pursuant to an advisory account with an asset-based fee. Under the first alternative, IRA 

investors would experience the bare bones, self-directed brokerage account of the 1990s – having

to complete transactions with little to nothing in the way of trading tools, stock screeners, and 

education.The second alternative would, in all probability, result in transitioning many IRAs from 

a strictly transaction-based payment structure to an asset fee-based model. Clearly, both

alternatives appear to be inconsistent with the result the Department is trying to achieve – serving

the best interest of the IRA investor.

IRA investors need, and have become quite accustomed to, ready access to information, 

education and alternative solutions. The Department’s proposed definition of fiduciary is so 

overly broad that even call center representatives would not be able to answer the simplest of 

questions about IRA rollovers without falling within the definition of fiduciary and triggering all 

of the best interest contract exemption (“BICE”) implications. The effect of the Proposal would 

be to severely limit information, education and affordable choices that such investors currently

have.

To be sure, IRA investors come to brokerage firms online, by phone and in-person visits 
to branch offices to discuss various products and services, the many investment options available 

to them, and financial investment education. The Department’s Proposal would certainly result 

in extremely limited, or worse, non-existent support conversations (even those initiated at the 

request of self-directed retirement investors) at critical times of need. Such support currently is 

offered at very little or no cost. Absent that support, I have reasonable cause to believe that 

future retirees such as myself would be required to either incur additional expense to meet their 

essential retirement-planning needs, or much worse, choose to remain ignorant about the risks of 

their investmenet decisions. This would not be good public policy.

Furthermore, without any support, tools or education as to the benefits of keeping their

assets in the retirement system (either in a vehicle such as a defined-benefit retirement plan or

in a new IRA rollover), IRA investors’ leakage of assets from the retirement system would 

accelerate. This will result even though the best intentions of the Department are to enhance

and improve the regulatory protections available to IRA investors and to encourage retirement 

savings. See, Wyman, Oliver, “The Role of Financial Advisors in the U.S. Retirement Market,” 

dated July 10, 2015 (Available at:http://fsroundtable.org/wp-content/uploads/2015/07/The-roleof-financial-advisors-in-the-US-retirement-market-Oliver-Wyman.pdf) (Last Visited on 

September 15, 2015).

C.

The Department's proposed limited list of permitted assets which, notably, excludes 

options, amounts to a solution searching for a problem, and is, thus, very harmful to IRA 

investors including those retirees who rely on premiums earned from selling call options 

fully-secured by stock ownership to supplement their income.

In what appears to be the first time in its history, the Department is proposing a limited 

list of permitted assets. IRA investors such as myself currently have a wide choice of 

investments for their IRAs, many of which are not included in the Department's proposed list.

And those not included may be used for important risk mitigation and investment diversification 

purposes. One glaring exclusion is exchange-trade call and put options. IRA investors

understand that a tax-deferred investment account is the ideal place to generate income from a 

stock portfolio; options when coupled with sound education and brokerage firm investor 

qualification processes can be used to minimize the risks associated with investing in stocks. 

See, the comments offered by Ms. Ellen L. S. Koplow, Executive Vice President and General 

Counsel, TD Ameritrade Holding Corporation dated July 21, 2015 (Available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00743.pdf) (Last Visited on September 15, 2015).

Moreover, without the ability to trade options in an IRA, current as well as future 

retirees would lose the ability to protect an overall stock portfolio, or for that matter, an 

investment in a particular company's stock by, for example, purchasing exchange-traded put 

options for downside protection. Viewed another way, this is is in the nature of “stock 

insurance.”

EXAMPLE: IRA Investor owns 100 shares of Apple (AAPL: NYSE) which closed at 

$116.28 per share as of Tuesday, September 15, 2015 at 4:00 P.M. Eastern Time, and 

wishes to purchase “stock insurance” in the way of one (1) put contract for $110.00 per 

share for the next three (3) months, that is, until Friday, December 18, 2015, in exchange 

for paying a premium in the sum of $4.98 per share. As a result, the IRA Investor is 
guaranteed to receive no less than $105.02 per share times 100 shares ($110.00 per share 

protection less the $4.98 per share premium paid) which equals $10, 502.00 through 

Friday, December 18, 2015, for each put contract purchased.

Similarly, by selling exchange-traded call options secured by stocks, an IRA investor can 

attain the benefit of maintaining an investment in stocks while generating income. This affords 

the investor some downside protection.

EXAMPLE: IRA Investor owns 100 shares of Apple (AAPL: NYSE) which closed at 

$116.28 per share as of Tuesday, September 15, 2015 at 4:00 P.M. Eastern Time, and 

wishes to sell one (1) call contract covered by the 100 shares owned which allows 

another investor the right but not the obligation to purchase the 100 shares for no 

more than $120.00 per share through Friday, December 18, 2015, in exchange for 

the other investor paying the IRA Investor a premium in the sum of $5.30 per share. 

If Apple is trading above $120.00 per share by Friday, December 18, 2015, the IRA 

Investor will have to deliver the 100 shares to the investor purchasing the call option 

contract, but the IRA Investor will get to keep the premium received. If Apple is 

trading below $120.00 per share as of Friday, December 18, 2015, it is likely that the 

IRA Investor will get to keep both the 100 shares of Apple stock as well as the 

premium received from having sold one (1) call option contract. In this example, the 

IRA investor generated income of $530.00 on the current market value of the 100 

shares of Apple stock in the sum of $11, 628.00, for having committed to deliver 

such shares to another investor during a three (3) month period of time.

Furthermore, an IRA investor can sell exchange-traded put options secured by cash with 

the aims of generating income and purchasing a stock at a price lower than the current market 

price. Here again, the investor would attain downside protection.

EXAMPLE: IRA Investor wishes to generate income in exchange for committing to 

purchase 100 shares of Apple (AAPL:NYSE) for $110.00 per share, which is $6.28 

per share less than Apple's closing price of $116.28 per share as of Tuesday, 

September 15, 2015 at 4:00 P.M. Eastern Time, through Friday, October 23, 2015, 

in exchange for receiving a premium in the sum of $2.69 per share. IRA Investor 

also wishes to buy 100 shares of Apple at a discount from its current market price.

IRA Investor will need to secure the commitment with cash in the sum of $10,731.00 

(Commitment to purchase at $110.00 per share, less premium received of $2.69 per 

share, equals $107.31 per share times 100 shares). If Apple is trading at or below 

$110.00 per share as of Friday, October 23, 2015, then IRA Investor will have to 

deliver cash in the sum of $10,731.00 out of the IRA in order to honor the obligation 

to purchase 100 shares of Apple stock but gets to keep the $2.69 per share in 

premium received totaling $269.00. If Apple is trading above $110.00 per share as of 

Friday, October 23, 2015, then in all probability IRA Investor will get to keep both 

the cash set aside to honor the commitment to purchase 100 shares of Apple stock 

through said date plus the premium already received.

NOTE: THE FOREGOING EXAMPLES DO NOT ACCOUNT FOR OR 

INCLUDE BROKERAGE COMMISSIONS/TRANSACTION COSTS.
III.

THE BOTTOM LINE

The bottom line is: quite apart from the Department's disturbing failure to comply with 

the requirements of the RFA because of a deficient IRFA in its current Proposal, the 

Department's broad definition of “fiduciary,” coupled with its a rather extraordinary measure 

excluding exchange-traded call and put options from its proposed permitted list of assets would 

be harmful to IRA investors. This is so because it will surely result in increased costs to 

investors like myself, who have smaller investment accounts. Further, excluding options from 

the proposed list would lead to less tools to defend against market forces which undoubtedly 

impact stock portfolios, and substantially curb retirees' ability to supplement their income. This 

would not be good public policy; on the contrary, it would defeat the very purpose of protecting 

current as well as future retirees' savings.

IV.

RECOMMENDATIONS

For the reasons set forth above, I recommend the Department take the following action:

First, I respectfully renew my request that the Department prepare a Supplemental IRFA 

and conduct hearings thereon before proceeding with its Proposal. Here again, I concur with the 

position and recommendation advanced by the SBA's Advocacy General Counsel.

Secondly, assuming that the Department proceeds with its current Proposal with or 

without a Supplemental IRFA, it should substantially narrow its proposed definition of the term 

“fiduciary,” in a manner that is reasonably-calculated to uphold, preserve, and protect IRA 

investors' current unrestricted access to, and enjoyment of, free or low cost investment data, 

tools, research, education and support services. Moreover, I concur with the position and 

recommendation advanced by Mr. Christopher Gilkerson, Senior Vice President and General 

Counsel, and Ms. Gail B. Mayland, Vice President and Associate General Counsel, Charles 

Schwab, in the filed comments dated July 20, 2015, at pp. 8-10 (Available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00571.pdf) (Last Visited on September 15, 2015).

Finally, and most importantly, the Department should include exchanged-traded call and 

put options on the list of permitted assets contained in the final rule. Here again, I concur with 

Charles Schwab's recommendation as set forth in the a foregoing comments at Exhibit 1, id, at 

pp. 24-25. See also, comments of Mr. Craig S. Donohue, Executive Chairman, Options Clearing 

Corporation (“OCC”) dated July 17, 2015, at pp. 2-3 (Available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00420.pdf) (Last Visited on September 15, 2015).

Thank you, again, for the opportunity to comment on the Department's Proposal.

Yours truly,
A. L. Davis